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HARDESTY & HANOVER, LLC Notes to Statement of Direct Labor, Fringe Benefits and General Overhead For the Year Ended December 31, 2019 NOTE 3: DESCRIPTION OF ACCOUNTING POLICIES The Company maintains a job-order cost accounting system for the recording and accumulation of costs incurred under its contracts on a consistent basis. Each project is assigned a job number so that costs may be segregated and accumulated in the firm's job-order cost accounting system. The Company also maintains a general ledger in which direct and indirect costs are separated and accumulated which allows for the periodic reconciliation of job costs to the general ledger. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company's method of estimating costs for pricing purposes during the proposal process is consistent with the accumulation and reporting of costs under its job-order cost accounting system. Property and Equipment Property and equipment are recorded at cost and are depreciated over their estimated useful lives using the straight-line method. Typically, estimated useful lives range from 3 to 7 years for furniture and fixtures including computer software, computer equipment and automobiles. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the remaining terms of the underlying lease agreement. Expenditures for maintenance and repairs are charged to expense as incurred. Items of equipment costing below $1,000 are not capitalized but are charged to expense as incurred. Computer lease buyouts are expensed as long as each item is less than $500. Allowance for Doubtful Accounts The Company records its accounts receivable net of an allowance for doubtful accounts. This allowance for doubtful accounts is estimated based on management’s evaluation of the contracts involved and the financial condition of its clients. The factors considered in the contract evaluations include, but are not limited to: • Client type – federal or state and local government or commercial client; • Historical contract performance; • Historical collection and delinquency trends; • Client credit worthiness; and • General economic conditions. It is typical in the engineering industry to have accounts receivable balances for extended periods of time. -8-